Friday, May 20, 2005

More Cramming Needed

I don't know if anyone who knows much about finance or economics bothers reading Slate's Daniel Gross, but it's worth doing just for the chuckle. His latest spectacle has him berating corporations for reneging on their pension obligations (by cutting benefits when the fund runs dry and/or the business hits the rocks) and then gets the obvious parallel between that and social security exactly wrong. Get this:

Indeed, the mother of all cram downs is shaping up this decade in Washington. For the past four years, as Americans have gone to work, played by the rules, and paid their taxes, Republicans in the White House and Congress have engineered a fiscal disaster. Every year, they take money that was supposed to be used for planning for retirement and spend it on other things. That's one of the reasons we have a crisis in Social Security. But like some of the private-sector corporate pension crises, this crisis is entirely discretionary. It's not that Congress and President Bush can't adequately fund Social Security. It's that they just don't want to. Instead, they want to cram us down.

This, of course, is exactly wrong. Social Security, and all pay-as-you-go pension plans, is a ponzi scheme and thus was a financial disaster from the very start. It may shock, shock Gross to learn that money going into social security was spent from the very start because social security is not a trust fund, has no trust fund, never had a trust fund, it's a pay-as-you-go system that taxes current workers to pay current retirees.

The crises in social security will come when retirees start to dramatically out number workers, resulting a budget shortfall that will require some combination of benefit cuts, higher taxes, lower spending, or borrowing. The fact that people are aging also has nothing to do with the Republicans, no matter what Gross may assert.

Bush's fix, of course, is to cut benefits to rich people. This is a cunning plan because the only thing Democrats like more than taking from rich people is giving them less. The best argument I've heard for why this is a bad idea is summed up by Berkeley dweller Brad DeLong, and it's lame:

by late in this century the odds are that—at least for the upper middle class—the standard Social Security check would be zero. Social Security would no longer be a universal program: It would be a program in which the half of America that is richer and more powerful and more likely to vote sees large chunks of its money going in and nothing coming out.

Of course, it's hard to see how to avoid this without cutting benefit for poor people or just taxing the bejeesus out of anyone who dares try to work for a living. Remember, the alternative plan of raising the social security tax cap also turns it into a program where the rich see themselves getting taxed a lot in return for practically nothing, unless their benefits also increase when the cap is lifted (pay more in, get more out) in which case there is no savings. A combination of dropping the cap but not raising the benefits leads to exactly the same problem Brad described--rich voters see their money being taken and not being given very much back.

I find it funny that the same people who strain to take every cent of Paris Hilton's money now scream bloody murder when someone suggests giving her less government aid in 40 years when she retires. [I don't want to pick on Paris, but for some reason she seems to be the current embodiment of all that is unearned and unjust in the wealth allocation arena, even though she probably works harder them most other trust fund babies, not that that's a particularly high bar to clear.]